The Shift to Platform Economies

In the dynamic world of platform economies, the transition from traditional pipeline models to innovative platform strategies marks a pivotal shift.

https://www.platformeconomy.io/blog/platform-economy-2023-u-s-leads-europe-lags

Currently, the US leads in platform economies with some of the largest companies in the world coming from America.

Pipeline Economies Vs Platform Economies

A pipeline economy is your traditional, high fixed cost economy, such as manufacturing or oil and gas, where the game is to reach economies of scale and low variable custom. A platform on the other hand, focuses on demand side economies, where the focus is on increasing the user base in order to raise the average value for everyone in the network.

Uber, which surpassed General Motors in market capitalization without owning a single vehicle, exemplifies this evolution from resource control to resource orchestration. One of the key distinctions is that pipeline businesses focus on streamlining internal processes to maximize customer value, while platforms aim to enhance ecosystem value through external collaborations.

Platforms leverage network effects, contrasting with the capital-intensive moats of supply-side economics. They operate fluidly across industries, prioritizing interaction volume over type. For example, a company like Google intersects between, healthcare, automotive, and IT industries while providing increasing value with each industry.

Crucially, platform success hinges on balancing open architecture and governance, fostering user engagement and innovation. Feedback loops within these ecosystems are vital, reinforcing or weakening the network, and demand versatile leadership styles.

Real-world cases like Uber and Airbnb underscore the resilience and adaptability of platform models, particularly in navigating challenges like the COVID-19 pandemic, where traditional industries struggled. This shift necessitates a reevaluation of strategic and leadership approaches in the ever-evolving business landscape.

Trends for platform strategies in 2024

1. The impact of AI: New startups are coming out with Artificial Intelligence as a service, where users can join the platform to use some of the AI tools available.
2. Circular Platforms: Network effects can boost reuse efforts across industries, from fashion to plastics. It’s estimated that 9% of materials get reused. Platforms provide the data, and save time, resources and costs. Platforms for sustainability can act as exchanges, resale marketplaces, sharing platforms, and sustainable logistics collectives.
3. Regulation: Opinions and laws clash about platform oversight, and whether it is enough. The debate is around free speach, and to what extent platform can release information. From Europe’s perspective, the European commission has already demonstrated its willingness to regulate platforms with the General Data Protection Regulation (GDPR).
4. Connected Manufacturing: Using tools like AI to correct long-help inefficiencies. Manufacturing adds 17% of the value added by all industries that year, according to the U.S. National Institute of Standards and Technology (NIST).
5. Influencers and the Community: The platform economy has spawned other industries, such as the creator industry. New tools such as AI has allowed influencers to create content more frequently and has more personalization and insight from their audiences.

References:

Parker, G. (2016). Pipelines, Platforms, and the New Rules of Strategy. Harvard Business Review. Retrieved from https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy

Stackpole, B. (2023). 5 trends for 2024 from the MIT Platform report. MIT Platform Review. Retrieved from https://mitsloan.mit.edu/ideas-made-to-matter/5-trends-mit-platform-report

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